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UPDATE 3-Sterling clings to gains against euro, falls 0.6% against dollar

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Updates rates)

LONDON, Oct 29 (Reuters) - Sterling clung to gains against the euro on Thursday after the European Central Bank held off on any new stimulus, as expected, but fell against the safe-haven dollar amid the return of national lockdowns in Europe. The pound touched its strongest level versus the euro since Sept. 9 at 90.07 pence and was up 0.1% at 90.37 pence per euro by 1605 GMT.

The ECB kept its policy unchanged, resisting pressure to introduce fresh stimulus amid a surge of coronavirus cases across Europe, but hinted at providing more support in December.

While the rise against the euro was influenced by the ECB meeting, cable dynamics is “much more a function of risk appetite,” said Jeremy Stretch, head of G10 FX Strategy at CIBC.

Versus a stronger dollar, the pound was down 0.6% at $1.2902 on the day, after earlier hitting a 13-day low of $1.2882 as risk aversion swept markets this week.

With rising infections threatening to overwhelm Europe within weeks, French President Emmanuel Macron and German Chancellor Angela Merkel ordered their countries back into lockdown.

In the meantime, Britain’s housing minister, Robert Jenrick, said a second national lockdown in the country is not inevitable. He added that Britain, the country with the largest number of coronavirus deaths in Europe, will do everything it can to avoid a new national lockdown.

However, Steven Riley, author of an Imperial College study into the spread of the disease, said more drastic lockdown restrictions should be brought in sooner rather than later in Britain as a new study showed cases in England are doubling every nine days.

Positive COVID-19 cases in England rose 23% on the previous week, statistics published by the country’s test and trace scheme showed.

With Britain and the European Union having just two months to reach a post-Brexit trade agreement before a status-quo transition period ends on Dec. 31, reports on the negotiations have been a key driver for sterling over the past few months. But analysts said a slowdown in the Brexit-related newsflow this week was supportive for the currency.

“The lack of Brexit newsflow this week probably means that UK-EU negotiators are already in the tunnel – a good sign for a deal,” wrote ING strategists in a note to clients, referring to the final stretch of secretive, make-or-break negotiations. (Editing by Toby Chopra, David Holmes, Kirsten Donovan)

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